Rakesh Jhunjhunwala recommended a high-quality stock in the belief that it would deliver multibagger gains. Unfortunately, it turned out to be a “disaster”. He has now paid a fee to SEBI to settle an allegation of insider trading

Rakesh Jhunjhunwala recommended Titan & Geometric Software

On 15th November 2003, Capital Ideas Online organized a conclave of distinguished luminaries from the stock market to offer stock recommendations to novice investors.

Rakesh Jhunjhunwala, the Badshah of Dalal Street, was obviously the star of the show and the cynosure of all eyes.

After all other luminaries had made their recommendations, the Badshah offered his.

He recommended three stocks being Tata Infomedia, Geometric Software and Titan Ltd.

As expected, Rakesh Jhunjhuwala’s investment rationale was flawless.

His precise words for Geometric Software and Titan Ltd were as follows:

“My second recommendation is Geometric Software. I believe that unlike other small software companies, Geometric is in a space in which there can be no encroachment. It’s in the PLM (product lifecycle management) space.

There is going to be vertical and horizontal increase in Geometric’s market.

Geometric until a year-and-a-half ago was working only for companies which created this software.

Now Geometric is going to work in the implementation and the servicing of the software, which is a much larger market than the creation and selling of the software.

The (PLM) space going to be the biggest element of enterprise software.

The third one is Titan. If India is going to grow at 7 and 8 per cent, which I believe it will over the next five years, I think FMCG and consumer durables demand will grow through the roof.

Titan has 55 to 60 per cent of India’s organised watch market. It also has a jewelry business. The size of the Indian jewelry market is roughly Rs 45,000 crore. I think there will be an explosion in growth.

The only problem is it has a very difficult balance sheet; it’s highly leveraged. There is some element of risk. One should be very careful when you buy it.

Also, I think one should buy it only if one has a three-five year perspective.”

Titan becomes mega multibagger, Geometric is condemned as a “disaster”

The amusing aspect is that if one carefully analyzes Rakesh Jhunjhuwala’s statement, one can see that he is gung-ho about Geometric while being diffident about Titan.

He described Geometric as being in a space in which “there can be no encroachment” and that “The (PLM) space going to be the biggest element of enterprise software”.

At the same time, he warned that Titan had a “very difficult balance sheet” and is “highly leveraged”.

“There is some element of risk. One should be very careful when you buy it,” he added in a chilling tone.

However, as events have turned out Titan Industries has blossomed into a magnificent mega multibagger while Geometric has sunk without a trace.

In August 2011, Rakesh Jhunjhunwala ruefully conceded that Geometric “has been a disaster for me”.

At that stage, the Badshah had not yet given up in Geometric.

In September 2012, Credit Suisse (Singapore) Ltd approached him and requested that he bail them out by buying their stake of 4.5%.

The Badshah obliged and bought the stake, increasing his stake in Geometric to a massive 14.55%.

HCL Tech issued 10 equity shares of Rs 2 each to Geometric’s shareholder for every 43 equity shares of Geometric of Rs 2 each held by them.

In the cross-hairs of SEBI over allegations of insider trading

Generally, when one buys an ill-fated and jinxed stock, all sorts of problems come calling.

This happened with Rakesh Jhunjhunwala as well.

SEBI sent him a show-cause notice making serious allegations that the Badshah had violated the SEBI (Prohibition of Insider Trading) Regulations, 1992 in his purchase of the Geometric stock.

Of course, the Badshah is not one to take such baseless allegations lying down. He defended himself vigorously.

SEBI & Rakesh Jhunjhunwala enter into settlement

Thankfully, better sense has prevailed on both parties that there is no point in squandering valuable resources in legal fees over baseless allegations of insider trading and that too for a junkyard stock like Geometric.

Hon’ble Sangeeta Rathod has noted that SEBI, vide letter dated November 22, 2018, informed Rakesh Jhunjhunwala that his case has been considered for “summary settlement” upon remittance of settlement amount of Rs. 2,48,872.

Naturally, the Badshah grabbed the offer and paid up the amount of Rs. 2,48,872 without even a second’s delay.

Upon this, Hon’ble Sangeeta Rathod has issued the clean chit and released the Badshah of the baseless allegation of insider trading.

SEBI’s proactive stance appreciated

SEBI deserves to be complimented because by issuing the show-cause notice to Rakesh Jhunjhunwala, it has sent the sent the clear message to all market participants that it is vigilant to the happenings in the stock and will spare no one.

This will spook anyone intending to indulge in nefarious activities.

At the same time, by settling the issue on payment of charges of Rs. 2.48 lakh, SEBI has shown that it is reasonable and has a practical approach.

After lot of research and personal experience, I have shortlisted these stock advisories for long term investments. Have very good experience with all of them. You can choose yourself : 1. PA Wealth Advisors ( www.pawealthadvisors.com ) 2. Stock Axis (www.stocksaxis.com) 3. Stalwart (www.stalwartvalue.com)

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